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Australia's Property Market Just Split In Two (Here's Where Smart Money Is Going) · The Follio Property Podcast

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House prices are dropping in our two biggest markets. Experts are predicting a jaw-dropping 200% rise in house prices in surrounding regions. Sydney's median house price to hit just over $2 million.
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This has been the most tumultuous month since COVID. Biggest concern is prices falling and cash flow. Auction clearance rates, they have fallen like a brick. Sydney and Melbourne are experiencing negative growth. First-time buyers are nervous. Sophisticated investors see as an opportunity. On the ground, we're seeing up to 30% falls. Adelaide could be in for a bit of a bumpy ride. Falling rents could result in house price falling in another 6 to 12 months' time.
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Is yield going to be super important? These budget changes, rate rises. Yield and cash flow has become king. Smart money wants to take advantage of dip in the market.
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You're listening to the number one property podcast in Australia, the Folio Property Podcast. I'm Rhys Biddle and I'm here each week with my co-host, Lachlan Delhunte. Lachlan, big one today. We're going to go through our new and improved investment report that our Chief Economist, Ryan Briarty, actually completes for us. We launched this earlier in the year, but we've had a bit of an upgrade over the last month. So really keen to show the audience some of our new data sets and what we're tracking from a Folio perspective. Yeah.
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It's a data dive, right? We're going to go into all the markets across Australia. I'll give my view on where they are in their current cycle, where we think the opportunity is, and where we think markets are likely going to continue to fall. So good episode. We're really proud of this investment report we've had, and we've had over 1,500 people register for this in the last couple of months, which has been really good to see. Has the feedback been positive? Feedback has been extremely positive on the report, led by economist Ryan Brighty.
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The big thing I guess we want to start doing is maybe highlighting some of that research each month. Because data is data, but if you can't interpret it, if you can't understand or interpret it, then it means nothing. So our job's to unpack it, right?
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Hey guys, quick thing to share. If you're serious about investing in Australian property right now, you need to see what we put together. It's called the National Investment Report and it's our brand new monthly deep dive into exactly where the market is moving, what the data is saying and what the smart investors are looking at right now. You can get the first access completely free. Just scan the QR code on the screen right now or click in the link below to fill out the form.
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And just so everyone's aware, from a data perspective, there is a range of different data warehouses we look at as a business. And we also have our own IP as well that we track. And I think that's probably one of the most powerful ones is our sentiment index that we've launched in 2026. And let's kickstart with that and actually go through some- It's pretty good because people just think, oh, is this just cotality, which is for those RP data or is this realestate.com? It's a combination. So we've got about 12 different warehouses that we seek data.
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and it's how you interpret data. So data is just data unless it's interpreted with the inputs that go in to give you a goal or a directive to determine what that data means for that particular market. And my job over the last 10 years, Rhys, is to try to understand what data means and how that affects our investment decisions. So that's what we're here to talk about. That's what we track. But it is a combination of double digit warehouses that we get the data, understand it, work with our chief economist to determine what we believe this means for the Australian property
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and for the last decade it's been pretty good with ai it's getting a lot better and that's that's exciting we're not going to promote ourselves as an ai only business but it certainly makes understanding tracking data for the last couple of decades draw out some really interesting correlations and that's that's what i get excited about
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Me too. Let's talk through, let's just give some reference to the audience first. This is up to May, right? And this year's been crazy in terms of sentiment going up and down depending on rate rises. We've had a few rate rises. We've obviously had the budget. Big lead up to that. A lot of proposals. Then we've had the budget. So...
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Just a caveat, what you're seeing now as a listener, this is up before the budget, but I'll give you some anecdotes post-budget that we've also been tracking while we've recorded this. Off the back of the budget, we're releasing exclusive content for subscribers only. If you're interested in getting our live updates, make sure you hit subscribe. So this is our folio sentiment data up until May. And what's it telling us, Rhys? The biggest concerns are prices falling and cash flow. So pretty self-explanatory, you'd imagine, with...
6:03
Lead into a budget that's going to deal directly with cash flow. It makes sense. What happened post-budget? So obviously in the last week we've gone back out to our database and we've got some new data insights. It's fascinating, right? And the next update we'll have more data to compare to. So confidence is actually up. Yeah.
6:20
Everywhere but Victoria, which is super surprising. It would surprise a lot of people, but it doesn't. For me, I said sentiment can move markets. Uncertainty is the biggest fear for most people just in life, right, even outside of property. So when there is certainty, even if it's not the outcome that is wanted or desired, we know what it is now. And who would have thought budget happened, wasn't what I expected, but now we've got certainty on the other side of that, and the sun's still come up and property prices haven't formed by 30% overnight.
6:47
So I think the fact that we know what we're dealing with creates the certainty that people want to give them the confidence as per the sentiment index. So I'm not completely surprised. And when you look at the numbers, Rhys, those with multiple properties are far more confident in the property.
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industry as a whole. Oh, 100%. That's the biggest move there, right? So you've got people with multiple properties, so two plus is what our sentiment index tracks. They say it is a great time to buy. First time investors are slightly more concerned and we've probably seen that throughout the last month or two with the budget getting announced. First time investors are probably less confident whereas more experienced are feeling a lot more confident in the market. And it is actually interesting when you look at what their concerns are. So an experienced investor like someone like yourself
7:32
it's going to be access to finance that is the major concern, whereas the first-time investors are more on the cash flow and the prices falling. Yeah, and that makes sense. Smart money wants to get more money because they probably see this as a period of time where there could potentially be a dip in the market and take advantage of that. First-time investors, they're going to get more led by headlines and media. Our prices are going to fall, they're going to go up, and by the time they make a decision, in most cases, it's too late. Yeah.
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The big one, though, is actually it has changed. So like I said, there's been multiple things happen over the last three or four months. But you're comparing that to the previous month. It was interest rates people were more concerned about. Now, as a first-time investor, now it is more on the prices falling.
8:14
Rhys, this has been the most tumultuous month we have experienced as a country since COVID. So it has been significant. You can't underestimate that. So it's so interesting to track the data during this period because certainly I don't think people understand the significance of what we've been through over the last 60 days with rate rises.
8:33
wars, and now an extremely significant budget. I'm not surprised that some of the sentiment data has been choppy, but it's telling a clear story. First-time buyers are nervous. Sophisticated investors see as an opportunity. Let's get through property prices now and around the grounds look to see where we're at. We've had episodes over the last couple of weeks pre-budget where we've spoken about the two-speed economy, places like Perth, Adelaide,
8:59
Brisbane seeing significant growth where areas like Melbourne and Sydney lacking. Now, the graphs we've got there on the sentiment index show some clear patterns. Is there anything there that sort of draws out to you before I kind of touch on some data points?
9:15
It's highlighted exactly what the two-speed economy, seeing Brisbane, Adelaide and Perth, week-to-week growth rise significantly through the months of April and May. And yet, no surprise in there that Sydney and Melbourne are experiencing negative growth. And this is what's important.
9:32
There's so much data out there, Reece, our week-to-week numbers, now more important than they've ever been, auction clearance rates. You're tracking that in Sydney and Melbourne. They have fallen like a brick, down low 40%, which is a market that will correlate into negative growth. But again, it's submarkets within submarkets. This is Sydney and Melbourne at the higher price points are getting hurt more than the lower or mid-tier.
9:54
It is interesting though, like so I actually spoke to the economists before we recorded just to get the most recent weeks that aren't going to be on this graph that you can see here because this was up till May. And there actually does start to appear, although still positive, there is starting to become a bit of a drop off in some of those markets. So Brisbane's a clear one where we can start to see the weekly price growth. Stagnate? Decreasing, I guess. Like if you're looking at the last three weeks, it was 0.3% growth and it dropped down to 0.2% growth.
10:21
And it's probably at about 0.18% growth in the last week. So it is starting to come down. Perth as well. So Perth is a, you know, we're very familiar with that market and how hot it's been. Last week, recording this, the week after the budget, it had its lowest increase. What was that? That was 0.3%.
10:39
Net that out of a month, you're still doing a percent a month. So again, everything's got to be within context. The fact that the toughest week, arguably, we've recorded this podcast, the Perth market still did 0.3%, which net that out to 1% growth a month, net that out to 12% growth a year, I think shows the strength and the undersupply markets like Perth.
11:01
and arguably Brisbane still did 0.1% net that out. It's still almost half a percent growth. So again, I think it's showing the resilience potentially in a market like Perth, it's showing resilience in a market like Perth to do what will be probably a full percent growth in the toughest market conditions that we've seen since COVID. Well, look, I don't always like saying, calling you out and how correctional predictions, but Adelaide's probably the big one, right? So you've been calling out since the start of the year. You have concerns that it's hit its affordability ceiling.
11:29
and prices will start to come off, that actually has the sharpest decrease. Now, look, we're still in positive territory, so it's not going negative growth, but the most recent week of the budget, it had no growth. So there we go. There's the market that may have just, looking back, we've called the peak of it in February and March. I think that is the first period for Adelaide. Those that are in Adelaide could be in for a bit of a bumpy ride. That and Sydney are sort of the two markets this year that I think are going to have the greatest falls, and that could be the first indication.
11:57
Our job here is to keep you up to date with what's happening in real time, real life data in terms of weekly data. So that will be interesting to watch that play out over the next four weeks.
12:06
Okay, let's talk through rents, Lachlan, particularly vacancy rates and some yield position as well. Looking through our data sets there, we can see low vacancy rates nationwide. Perth being the tightest at 0.5%. Brisbane and Adelaide, super tight as well. Similar across the price growth, we're seeing a bit of a two-speed market on vacancy rates as well. Anything there that surprises you or is it pretty self-explanatory off the back of price growth?
12:32
No, it's like, again, people when looking at these markets say Melbourne's had the sharpest rental growth across Australia. Yeah, has strongest growth Melbourne. Yeah, strongest growth across. So then we talk about people, some of the comments I've seen, they're like, you know, you're so anti-Sydney, but you still think Melbourne has some upside. It does, because if you look at the data sets, you've got a rising rental market. So Melbourne has been the strongest performing rental market now for the last 12 months. And still, as we look through Jan, February, March, April, the fastest growing rental market.
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So what does that mean? That tells me investors are still confident in Melbourne. When you get rising rents, it means you can support, makes it more of an advantageous market to invest in. So not surprised there. You can see that Brisbane has stabilised and Adelaide arguably going backwards. So again, this plays into my concerns that potentially Adelaide was overheated. Not only have we seen a decline in house prices, we're starting to see a fall in rents and that looks to be echoing into Brisbane.
13:31
So, again, concerns when you look at a market and take a step back, Rhys. Why vacancy rates and rents are so important? There's a very strong correlation between rents rising and then house price rising six to 12 months later, sometimes 18 months later. If you go back and have a look at...
13:47
Adelaide, Brisbane, 2016, 17, 18, they had sharp rises in rents and then the market continued to follow with house prices. Same is true when they come off and seeing Brisbane and Adelaide potentially stagnate and fall in rents could result in house price falling in another 6 to 12 months time. So just interesting to see that. And Sydney, interesting, it's pretty balanced there. We're not seeing a rise or a fall. It seems to be pretty stagnant.
14:09
I mean, it's interesting you brought up the Melbourne example. So you're completely right. Strongest growth from January to April has seen the biggest growth out of all cap cities. Still has some room to go too. Like if you're looking at the median rent is at $687 a week, which comparing to Brisbane, Perth and Sydney is still far more affordable. The big one that's probably happened in the last few months as well is from a yield position, no surprise, Melbourne's the best market in Australia now.
14:35
Yep. And where does investment go? It's where the cash flow can be supported. So that's why we're going to see once we get through this period of uncertainty, we've got through a budget, now it's just getting through foreseeable interest rate rises. And we'll get certainty around that over the next month or two, I believe. You can see that investment will come to Melbourne and come in droves, I believe.
14:55
That is good. It's no surprising that Perth yields are coming off because we're seeing such significant house price growth, which means your rental returns comparison to the price you need to purchase that property is your net yield. So that is falling and will continue to get harder as I forecast continual growth for Perth. And then you're going to see the same with Sydney. I think you'll see an uplifting yield because house prices are falling like a brick there. Locally on the ground, we're seeing evidence of 20, up to 30% falls, significant falls, which will make it...
15:25
potentially somewhat palatable although investing in sydney with no negative gearing is going to prove to be a different difficult concept
15:34
Is yield going to be super important now off the back of these budget changes, rate rises? Yield and cash flow has become king in property investing. So it makes places like Sydney really difficult to invest with any level of confidence because your cash burn race is going to be up to $200,000, $250,000 a year with none of that coming back off your tax return. That's why that market's been hit from three angles, rising rates.
15:58
negative migration, negative interstate migration, and now a budget that just doesn't support the whole property long term in Sydney. I think we could see the biggest fall we've seen in that market well over a decade. What about falling? You're looking at the yields here of Brisbane and Perth, both in falling environments, which is no surprise considering the run both those markets have gone on from a property price perspective. Do you see that softening, or would we expect markets like that to continue to decrease from a yield perspective? Perth and? Brisbane.
16:27
Yeah, I think for Perth, because we're going to see price growth in the short term and potentially a stagnating of yields. But what's going to happen nationally, I think, off the back of the budget is a significant rise in rents, which will support all markets. It's just whether house prices in places like Perth will outperform rental growth.
16:44
I think it'll be probably pretty consistent. So I think the baseline that you're seeing there will remain consistent at this level for the remainder of the year, potentially as rents rise and house prices continue to support that. You may see in places like Brisbane and Adelaide and Sydney where prices are falling, but rents are rising, that the yield becomes more attractive. Do you see in this current environment, yields below 4% just being an unobtainable investment asset?
17:10
It's going to be very difficult to justify that race. There's always, I'll never say never, the right opportunity in the right market at the right price may represent significant upside, then it will make sense. But it's going to be harder to see value in assets sub 3.5, certainly sub 3.5, but potentially 4% yields. Yeah.
17:30
Let's look at the investor lending activity, which we've got to take some of this data is delayed. Some of this data comes out from ABS, which then our economists dissects and looks does some of the modeling and forecasting. So some of this data, you know, when you're looking at it, only comes out every three or six months. But looking at the investor lending was no surprise. You know, we've spoken about this for the last six months that there's been a big increase in investor lending up to 40%, hence why they've started pulling these levers. First, it was the
17:59
debt to income ratio being below six times. They had some trust lending and now obviously they've
18:05
pulled the handbrakes on negative gearing and increase in CGT. You can see here that their behavior has kind of been, investor behavior has been cautious and confident again through 2025. It's really choppy, right? You look at that from March, June, September, and December. It tells four very different stories. And I think it, and we're going to see that in 2026. This is, when I speak, sentiment drives markets more than anything else.
18:30
This is a perfect snapshot of that because you think, when was sentiment at its absolute lowest? Across the board, it was March last year when there was a fear that there could be some rate rises. When has sentiment been at its absolute peak or when investment activity and lending was at its absolute peak?
18:47
It was in September when the commentary around it was that we're going to see two or three rate cuts in 2026. So the perception of rate cutting fled all that sentiment and confidence into the market during that September period. And then fast track to December when it was a little bit unsure and the likelihood that rates could actually increase, you can see a massive dip and shift in sentiment, which is investment activity in my view. So...
19:13
So when we get the data to come through on the most recent 2026 March quarter data, I think you'll find that it's continued in the same trajectory. We'll see negative investment activity and that will remain until there's some sentiment changes around where interest rates are going to land.
19:32
Not to just continue to put the spotlight on Melbourne, but I think that's probably a fascinating one here. But you look at the Melbourne there as well from a percentage change and increase from an investor loans activity. The biggest increase off the back from September to December 25 quarter and actually saw the most. Yeah, from 5% to close to 20%. That's a four times multiple. It's massive. So you can see how much sentiment can just shift to market.
19:58
Exactly. So I think it'd be interesting to track this. Like you said, it could be choppy up and down off the back of some of the announcements over the previous week or month from an interest rate perspective. Let's kick off with the folio property cycle, Lachlan. Those that are listening, a cycle up here showing decline, growth, opportunity, and stabilism. Talk us through this property cycle and then we'll start going through some comments on why you see certain cities in each area. Tomorrow morning is knocking. Stock your fridge now. How about a
20:30
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20:39
From the start of the year, I've had great, and late last year, I had serious concerns for Sydney and Adelaide. From an affordability context, but also when you look at the migration data. And there's some of the two biggest levers when you look at how markets can or will perform. So it's no surprise we see them at the top of the cycle and potentially, you know, Sydney's definitely going through that decline period and Adelaide is likely to shift across into that decline phase, if not now, very, very soon.
21:08
So there's looking at that and understanding that it's not just based on our opinion. There's a lot of economics behind this that positions them on the cycle. But a lot of it's to do with supply and demand fundamentals as well as affordability. When I look at the opposite end of that spectrum, again, we're seeing Melbourne and Canberra
21:26
And you could argue, say, well, Melbourne's going backwards. It's going backwards from a median house prior to view at certain segments of the market. And when you look at something at the bottom of the cycle, any market at the bottom of the cycle, it is choppy. There is positive growth followed by negative growth followed by some periods of positive growth. That is what you see in any market early cycle.
21:46
So that's why we've got the opportunity phase, certainly through the stabilisation phase. I think when we look back on Melbourne, we'll still call the bottom of the market race was without a doubt, you know, mid or early 2025. And, you know, for the sub markets we're investing in.
22:01
And then you've got areas like Darwin still in that opportunity phase. We don't encourage that. But where do we think? We don't think it's at the top of the market. We think it's closer to the bottom than it is the top. Obviously, Tasmania and Hobart is going through its challenges. I think it's probably...
22:19
not fully out of the decline. And obviously Perth and Brisbane, Brisbane is getting very close to the top, if not close to the top already, Rhys. It may be, as we've got it presented here, it's almost at midnight. I think if it's not there already, it's getting similar to Adelaide. It's very close.
22:37
And Perth, I think short term, we're closer to the top of the cycle than we are the bottom. But the supply and demand imbalance and the migration still coming into Western Australia is going to support that market for at least the next 12, likely 18 months. Just a reminder for everyone listening to this podcast, if you want access to this report and see the data sets that we're tracking each month,
22:59
We'd love you to click on the link and apply for the National Investment Report. It does help us get sentiment index and track markets moving forward, and you'll get a copy of that every month moving forward. You've been listening to the Folio Property Podcast.